Aug. 14 (Bloomberg) -- Mexico has come up with an
inducement for private companies such as Exxon Mobil Corp. to
bid on contracts that would end a 75-year state energy monopoly.

Though the government will retain ownership of oil,
President Enrique Pena Nieto plans to lift restrictions on
companies registering the value of contracts with the U.S.
Securities and Exchange Commission, Deputy Energy Minister
Enrique Ochoa said in an interview yesterday. Those values could
then be converted into volume and recognized on balance sheets.

Allowing companies to book some reserves would increase a
proposed profit-sharing model’s attractiveness by making it
easier for them to raise financing, according to Citigroup Inc.
The rule change would be secondary to the government’s main
proposal of changing the constitution to allow private companies
to develop fields for the first time since 1938.

“It’s very significant,” Julio Zamora, an equity
strategist at Citigroup, said by telephone from Quintana Roo,
Mexico. “Booking reserves is a way for companies to put them on
the balance sheet and allow users of financial statements to
understand where they are spending and investing and where they
are looking for future production to come from.”

Pena Nieto, the 47-year-old former governor who returned
the Institutional Revolutionary Party, or PRI, to power in
December, opted for profit-sharing contracts to loosen state-owned Petroleos Mexicanos’s grip on the oil industry and help
reverse an eight-year crude production decline.

Looking Closely

Pacific Rubiales Energy Corp., Colombia’s largest
independent crude producer, is “looking very closely at
Mexico,” Chief Executive Officer Ronald Pantin said in an
interview yesterday in Bogota. “We have met with Pemex,” he
said. “If the contract conditions make sense, we’ll be in
Mexico.”

Under the proposal, companies will be paid a portion of
cash generated from fields, rather than from barrels produced,
as the government seeks to garner support from the National
Action Party, which proposed concessions, and the Democratic
Revolution Party, which opposes changing the constitution.

Investment Boost

Mexico has the biggest proven oil reserves in Latin America
after Venezuela and Brazil, with 13.87 billion barrels, and
shale-gas resources that may be as high as 460 trillion cubic
feet, according to data compiled by Pemex. The state-owned
company says that with the proper investments and technology,
about 27 billion barrels of crude in the deep waters can be
added to the nation’s proven reserves.

Pena Nieto’s measures seek to promote investment that will
lift the economy by 2 percentage points by 2025. The energy
changes would prompt as much as $50 billion in annual
investments, according to Hector Moreira, a Pemex board member.

Pena Nieto’s chief of staff, Aurelio Nuno, said Aug. 12
that the government will push to have constitutional and
regulatory amendments approved by the end of the year. The
proposed contracts are similar to those used in Ecuador and
Iran, Energy Minister Pedro Joaquin Coldwell said Aug. 12.

“The plan is that companies will be allowed to register
the economic interest of the risk-sharing contracts under SEC
rules that allow converting that value into volume while the
state maintains full ownership,” Ochoa said.

Exxon, Chevron Corp., Royal Dutch Shell Plc and Repsol SA
are among major producers that have expressed interest in
Mexican oil fields. Spokespeople for all four companies declined
to comment on the plan to allow SEC registration.

‘Build Agreements’

If the risk-sharing model doesn’t mandate a minimum stake
for Pemex and allows companies to report some reserves “Mexico
has a lot going forward,” said Jeremy Martin, an oil specialist
at the Institute of the Americas in La Jolla, California. “The
Mexico model may be attractive enough because it’s country
risk.”

Oil at all stages of production, refining and distribution
has been the legal property of the Mexican people since 1938,
when then-President Lazaro Cardenas seized fields from U.S. and
British companies and changed the nation’s charter. The
expropriation is celebrated every March 18 and trumpeted as a
point of pride in schoolchildren’s textbooks.

“The major oil companies really care about booking
reserves,” said Tim Samples, a law professor at the University
of Georgia. This is the “second-best thing” after production-sharing contracts, he said.

‘Real Progress’

The SEC allows companies to register reserve equivalents
stating that “under the economic interest method, the company’s
share of the cost recovery oil revenue and the profit oil
revenue is divided by the year-end oil price, which represents
the volume entitlement,” according to guidelines published by
the regulator on 2001.

“It seems like there’s real progress in the government’s
thinking about reserves,” George Baker, a Houston-based energy
consultant, said in a telephone interview. “The possibility
needs to be explicitly shown in the regulatory law.”